Forensic accounting is the use of accounting, auditing, and investigative skills to examine financial records for use in legal proceedings — in court, in depositions, or in settlement negotiations. If you are an attorney, litigant, or business owner dealing with fraud, a disputed divorce, or a financial dispute, a forensic accountant provides the credible, court-ready financial analysis your case depends on.
Quick answer for attorneys:
- What it is: A specialized discipline combining accounting, auditing, and investigation to produce financial evidence for litigation.
- Who uses it: Family law attorneys, commercial litigators, criminal defense/prosecution teams, and insurance counsel.
- Core tasks: Tracing hidden assets, quantifying economic damages, detecting fraud, and calculating lost profits.
- Key output: Written expert reports and sworn expert testimony that survive Daubert/Frye scrutiny.
- When to call: Before discovery closes — early engagement maximizes what financial data can be preserved and analyzed.
What Is Forensic Accounting?
Forensic accounting is a specialized area of accounting that applies accounting, auditing, and investigative expertise to analyze financial information for use in legal disputes. The word “forensic” means suitable for use in a court of law. Unlike a standard audit — which verifies that financial statements comply with accounting standards — forensic accounting is designed to find evidence, quantify damages, and communicate findings in a way that judges and juries can understand.
Forensic accountants examine bank records, tax returns, business financials, and other financial documents to uncover fraud, trace hidden assets, calculate economic losses, and determine the true financial picture in a disputed matter. Their work product — written reports and expert testimony — is built to withstand cross-examination in a court of law.
When Forensic Accounting Is Used (Litigation + Disputes)
Forensic accounting is called upon whenever a legal matter turns on financial facts. Below are the most common litigation contexts.
Divorce and Hidden Income/Assets
In high-asset divorce cases, one spouse may conceal income, undervalue a business, or transfer assets to third parties to reduce the marital estate. A forensic accountant reviews bank records, tax returns, business financials, and lifestyle analysis evidence to identify discrepancies between reported income and actual spending. This work directly supports equitable distribution, alimony, and child support determinations. See our forensic accounting services for divorce matters.
Business Partner Disputes / Shareholder Claims
When business partners or shareholders disagree over the value of a company, allege financial misconduct, or suspect a co-owner of self-dealing, forensic accountants examine books and records to quantify what actually occurred. This includes business valuation analysis, review of distributions, related-party transactions, and assessment of damages claimed by the aggrieved party.
Fraud and Embezzlement Investigations
Forensic accountants act as financial detectives, tracing funds through multiple accounts and entities to document exactly how money was diverted, who benefited, and the total amount stolen. Their findings support civil recovery claims and may be provided to law enforcement for criminal prosecution. Common schemes investigated include vendor fraud, payroll fraud, check tampering, and financial statement fraud.
Economic Damages and Lost Profits
When a breach of contract, tort, or business interruption causes financial harm, the damaged party must prove the amount of their loss with reasonable certainty. Forensic accountants calculate economic damages using accepted methodologies — such as the “but for” approach — to establish what the plaintiff would have earned absent the defendant’s conduct. This work forms the financial backbone of commercial litigation. Read more: how lost profits are calculated in business interruption and contract disputes.
How a Forensic Accountant Works (Process Overview)
Understanding the forensic accountant’s process helps attorneys and clients know what to expect and how to prepare.
1. Initial consultation and scope definition. The forensic accountant meets with counsel to understand the legal theory, identify the key financial questions, and define the scope of work. Early engagement is critical — it allows the expert to guide discovery requests and preserve relevant financial evidence.
2. Document collection and review. The forensic accountant requests and reviews financial records: bank statements, tax returns, general ledgers, payroll records, contracts, invoices, and financial statements. The breadth of documents reviewed depends on the complexity of the matter.
3. Analysis and investigation. Using specialized software and investigative techniques, the forensic accountant traces funds, identifies anomalies, reconstructs financial records, and applies appropriate methodologies to quantify damages or identify fraud.
4. Written report. Findings are documented in a written expert report that identifies the accountant’s opinions, the bases for those opinions, and the supporting data. The report is drafted to comply with applicable court rules and expert witness disclosure requirements.
5. Deposition and trial testimony. The forensic accountant is available to testify at deposition and trial, explaining complex financial findings in plain language and defending their methodology under cross-examination. See more about expert witness and litigation support services.
Forensic Accounting vs. Audit vs. Bookkeeping
Many clients and even some attorneys confuse these three disciplines. Here is a clear comparison:
| Discipline | Primary Purpose | Who Uses It | Output |
|---|---|---|---|
| Forensic Accounting | Investigate financial disputes and fraud for litigation | Attorneys, courts, litigants | Expert report, testimony |
| Audit | Verify financial statements comply with accounting standards | Investors, lenders, regulators | Auditor’s opinion letter |
| Bookkeeping | Record day-to-day financial transactions | Business owners | Financial records |
A forensic accountant is specifically trained and experienced in the legal context — they understand how financial evidence must be presented to survive challenge in court. An auditor’s job is not to find fraud; a bookkeeper’s job is not to testify.
What Documents to Gather Before You Call
The sooner you gather financial documents, the more effective the forensic accountant’s engagement will be. Depending on the matter, you may need some or all of the following:
- Personal and business federal and state tax returns (3–5 years)
- Bank and brokerage account statements (all accounts, 3–5 years)
- Business general ledgers, profit & loss statements, and balance sheets
- Payroll records and QuickBooks/accounting software files
- Corporate records (meeting minutes, shareholder agreements, buy-sell agreements)
- Loan applications and financial disclosure statements
- Contracts relevant to the dispute
- Credit card statements
Bringing organized financial records to your initial consultation helps the forensic accountant quickly assess the scope of work and identify the most productive lines of investigation.
How Forensic Accountants Support Expert Testimony (Daubert-Ready Work)
In federal courts and most state courts, expert testimony must meet reliability standards established in Daubert v. Merrell Dow Pharmaceuticals (and analogous state standards). Forensic accountants who regularly serve as expert witnesses structure their work product to satisfy these standards.
This means using accepted, peer-reviewed methodologies; clearly documenting the data reviewed and assumptions made; and being able to explain and defend every step of the analysis under cross-examination. A properly qualified forensic accounting expert will have relevant professional credentials — such as CPA, CFF (Certified in Financial Forensics), CFE (Certified Fraud Examiner), or ABV (Accredited in Business Valuation) — and a track record of accepted testimony.
At Joey Friedman CPA, our forensic accounting expert witness services are built around Daubert-ready methodology. We work with litigation counsel throughout the case to ensure our opinions are well-founded, disclosed properly, and ready for trial.
FAQs
What is the difference between a forensic accountant and a regular CPA?
A regular CPA typically provides tax, audit, or general accounting services. A forensic accountant is a CPA (or other accounting professional) with specialized training in fraud investigation, litigation support, and expert witness testimony. Forensic accountants work within the legal system; their reports and testimony are designed to be presented in court and to withstand cross-examination.
When should I hire a forensic accountant?
You should consider hiring a forensic accountant as early as possible in a dispute — ideally before discovery closes. Early engagement allows the expert to help shape discovery requests, identify the right financial documents to subpoena, and preserve evidence that might otherwise be lost. In divorce, fraud, or commercial litigation matters, early forensic involvement can be decisive.
How much does a forensic accountant cost?
Fees vary depending on the complexity of the matter, the volume of documents to review, and the expert’s experience. Most forensic accountants charge hourly rates. In complex commercial or fraud matters, total fees can range from a few thousand dollars for a limited document review to tens of thousands for a full investigation and trial testimony. A reputable forensic accountant will provide a clear engagement letter outlining scope and fees before work begins.
Can a forensic accountant find hidden assets in a divorce?
Yes. Forensic accountants are specifically trained to identify when reported income or assets do not match a party’s actual financial picture. Common methods include lifestyle analysis (comparing reported income to actual spending), tracing bank deposits, reviewing business financials for personal expenses run through the company, and analyzing loan applications that often show higher income than tax returns.
What is a forensic accountant’s role in fraud cases?
In fraud investigations, the forensic accountant acts as a financial detective. They trace funds through multiple accounts and entities, identify unusual transactions, reconstruct financial records that may have been falsified, and quantify the total loss. Their findings are documented in a written report that can support civil recovery claims or be provided to law enforcement for criminal prosecution.
What credentials should a forensic accounting expert witness have?
Look for a CPA with one or more of the following specialized designations: CFF (Certified in Financial Forensics, issued by the AICPA), CFE (Certified Fraud Examiner, issued by the ACFE), or ABV (Accredited in Business Valuation, for matters involving business value disputes). Prior testimony experience and a demonstrated ability to explain complex financial issues clearly are also important.
What is the difference between economic damages and lost profits?
Economic damages is the broader term — it encompasses all financial harm caused by a defendant’s conduct, including lost profits, lost business value, out-of-pocket expenses, and other quantifiable losses. Lost profits is a specific category of economic damages representing the revenue a plaintiff would have earned but for the defendant’s wrongful conduct. Both require careful financial analysis by a qualified forensic accountant. Learn more about our economic damages services.
How does forensic accounting support business valuation in litigation?
In shareholder disputes, divorce cases involving business interests, and buy-sell agreement disputes, the value of a business is often central to the case. A forensic accountant with business valuation expertise can analyze the company’s financials, apply appropriate valuation methodologies (income, market, or asset approaches), and produce a defensible value opinion. Learn more about our business valuation services.
Need Forensic Accounting Services in South Florida?
Joey Friedman, CPA, PA has provided forensic accounting and expert witness services to attorneys and litigants throughout South Florida for over 25 years. Our practice focuses exclusively on forensic accounting, business valuation, and litigation support — we do not prepare tax returns or perform audits, which means we are singularly focused on the types of financial analysis that matter in litigation.
If you are handling a divorce, fraud investigation, commercial dispute, or any matter involving complex financial issues, contact us to discuss how we can help.
